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It’s just like mom always said, and it’s no different with
Bitcoin: “If it seems too good to be true, it may be.”

So said the U.S. Consumer Financial Protection Bureau (CFPB)
today, in a somewhat sternly-worded
advisory warning to consumers about the potential pitfalls of
doing business in Bitcoin. The alert also called out other
cryptocurrencies, like Dogecoin and XRP, as potentially sketchy.

The message, which marked the federal consumer watchdog’s first
official comment on Bitcoin, was clear: If you’re buying Bitcoin,
you’re jumping without a net into the risky world of
cryptocurrency.

“Virtual currencies are not backed by any government or central
bank,” said CFPB director Richard Cordray, “and at this point
consumers are stepping into the Wild West when they engage in the
market.” He warned that, while virtual currency “may have
potential benefits,” consumers should still educate themselves
about digital currency and ask questions before they make the
leap.

The four specific risks the CFPB advised consumers about in the
six-page advisory alert are:

1. Hackers. These people are prone to prey on
virtual currencies, the notice read. For instance, "highly
sophisticated hackers" could unlock your virtual wallet,
depleting all your funds.

2. Fewer protections. If you store your digital
cash with someone else or a company, you’re on your own when
“something goes wrong.”

3. Cost. While there definitely can be an upside
to Bitcoin, the CFPB said that virtual currencies “can cost
consumers much more to use than credit cards or even regular
cash.” Their reasoning is based on volatility and hidden costs.

4. Scams. Fraudsters are out to cash in on the
Bitcoin buzz, cheating “people with fake opportunities.” The CFPB
cited exchanges and traders as potential areas for scams to
occur.

The CFPB also said in the advisory that if you’ve ever been
burned doing business with a Bitcoin (or other virtual currency)
company, it wants to know. It’s now accepting Bitcoin
business-related consumer complaints online here.

Bitcoin proponents, like Jim Harper, the global policy counsel
for the Bitcoin Foundation, didn’t seem put off by the CFPB’s
warning and call for complaints. Comparing the notice to
“even-keeled educational material,” Harper told the Associated Press that he found it “helpful to the
extent that it informs consumers without scaring them.”

Bitcoin backer Barry
Silbert, SecondMarket Holdings and Bitcoin Investment Trust
founder, wasn’t ruffled by the advisory, according to IDG News Service. He said in the report that “a
number” of the risks listed in the CFPB notice could also apply
to cash. “Investing in bitcoin is indeed risky, but using it
is no more risky than using physical U.S. dollars.”